Inventories
of homes for sale have been slow to bounce back since the 2007–09
recession, despite steady price appreciation since January
2012.
Normally, higher prices reflect robust sales. But lately, prices have been rising even though sales remain stuck at relatively low levels. The National Association of Realtors reports that an annualized 4.5 million homes were sold in June 2013, roughly the same as at the end of the 1990s.
Normally, higher prices reflect robust sales. But lately, prices have been rising even though sales remain stuck at relatively low levels. The National Association of Realtors reports that an annualized 4.5 million homes were sold in June 2013, roughly the same as at the end of the 1990s.
Many
prospective buyers attribute the low sales volume to a lack of
inventory on the market. So why are there so few homes for sale?
There are lots of reasons why.
William
Hedberg, a research associate, and John Krainer, a senior economist,
both with the Federal Reserve Bank of San Francisco, examine some of
the factors affecting this “more complicated than normal”
situation in a recent paper. Here are their key findings:
Many
homeowners are still underwater. Many
properties are still worth less than the value of their mortgages,
which would leave sellers owing additional money at closing.
As
a result, a large number of homeowners are waiting for house prices
to rise, allowing them to recover lost equity. They delay putting
their homes up for sale until the situation improves and they can
make back enough to cover the down payment on their next purchase.
Putting
a home up for sale can be costly. Sellers
routinely make home repairs and renovations, add landscaping, and
even rent new home furnishings to make the home more appealing to
potential buyers. Even though the general economy has improved, not
all sellers can afford to spruce up their homes to get top dollar. So
they wait.
Lenders’
worries ease during good economies. We’re
not there yet. Tight credit conditions affect homeownership decisions
of young buyers. Easier loan approvals allow more people into the
housing market. Lots of people (such as first-time homebuyers) have
less-than-perfect credit scores, so they still can’t qualify for
mortgages.
Fallout
from the housing boom and bust has played a role. A
remarkable feature of the boom was the unprecedented rise in
homeownership rates. Younger households became more willing and able
to buy homes. Lending terms and conditions eased substantially,
allowing less creditworthy borrowers into the market.
These
trends went into reverse during the housing crisis and the
homeownership rate has fallen. With fewer households purchasing
houses, inventory has shifted from the for-sale to the for-rent
category.
When
people are nervous about the economy, they rent. The
for-rent inventory of homes as a share of total housing units has
risen steadily during the recession and the recovery, while the
for-sale inventory has steadily dropped but is now stabilizing.
Census Bureau data suggest that the drop in owner-occupied units
relative to renter-occupied units is unprecedented since the 1960s.
The
changes in for-sale and for-rent inventories are seen most
dramatically in markets where foreclosure rates were high and where
investors are now reportedly playing an important role in home sales.
In markets such as Las Vegas, Miami, and Phoenix, the total inventory
of homes for rent is approaching that of homes for sale. This shift
has continued throughout the recovery, not just most recently when
prices have been rising and inventories have failed to respond.
The
decline in homes for sale is very closely linked with the large
downward shift in the homeownership rate in these markets. It is
impossible to say, though, whether declining sales are pushing down
homeownership rates or vice versa. But both factors are clearly
interacting with each other.
Tight
credit means fewer new houses can be built.Builders
have to qualify for loans to build spec homes. Fewer new homes means
less inventory.
Homeowners
are taking a longer-term view of the housing market. Homeowners
who aren’t highly motivated to sell can wait for the pricing
momentum to shift. If they observe prices going up, they may want to
wait and gamble that the increases will continue, allowing them to
sell later at a higher price.
To
learn more and dig deeper into the data, you can find Hedberg and
Krainer’s full explanation along with accompanying graphs on
the San
Francisco Federal Reserve Bank’s website.
For
more information contact
Jerry
Gusman
The
Gusman Group
(888)
213-4208
jerryggroup@aol.com
No comments:
Post a Comment